GOOD INVESTMENT RETURNS & POSITIVE IMPACTS:

Wouldn’t it be great to achieve your investment goals while changing the world for the better?  What’s not to like?  Faith-Based and Environmental/Social/Governance-ESG investments provide a Values-Based strategy to structure investments to be consistent with personal values and to achieve positive impacts.  Examples of positive impacts would include less tobacco and a cleaner environment.  We would certainly not want our investments to support pornography or companies that cause toxic releases into our environment.  For example, it would be desirable to avoid situations like the notorious Union Carbide chemical gas plant toxic release in Bhopal India that killed nearly 3,800 people.  More recently Volkswagen was caught in a scandal where they were cheating on emissions standards for their diesel-powered vehicles.  Currently, Under Armor is receiving bad publicity for corporate reimbursement of employee expenses at strip clubs.  Although it is impossible to know all the bad actors in advance, there are increasing investment opportunities to help match your personal values with positive impacts.  This blog article provides information to help guide your investment decisions to align your investments with your values while helping achieve a greater positive impact.  The Stewardship and Investment Impact gives additional information.

DEFINITIONS:

Investors and the media tend to use various terms and titles interchangeably and there are no set standards, but hopefully the definitions listed below will be helpful.

Values-Based investing falls into two broad categories:

1. a) Faith-based and
2. b) Environmental, Social & Governance-ESG. Sustainability is often associated with ESG investments.

Faith-Based investing is based on religious convictions and the strategy generally avoids sin-stocks centered around alcohol, pornography, tobacco and gambling.  Abortion, weapons and nuclear power are other common screens.  Many faith-based investments also consider workplace issues and environmental factors.  Environmental issues are sometimes characterized as evangelical environmentalism or as “Creation Care.” concerns.  Creation Care holds that the earth and its produce and inhabitants belong to God, not to humanity and it is humanity’s role is to be a good steward.  For example, the National Association of Evangelicals encourages restrictions on consumption that are destructive or polluting.

Environmental, Social and Governance Investing-ESG includes:

-Environmental-Climate change, emissions and waste, and resource efficiency.

-Social-Diversity, human capital & safety, product integrity and supply chain management, and community relations.

-Governance-Board & executive diversity, corporate structure, accounting & transparency, executive compensation.

Impact Investing seeks a positive, measurable impact while hopefully achieving a market rate of return.  Faith-based and ESG funds generally include Impact Investing as part of their investment objectives.

Screens are used in investment fund construction/maintenance by fund managers to eliminate certain companies with negative attributes and add companies with positive attributes.

Socially Responsible Investing-SRI is a term that goes back to the 1960s to describe investment funds that were based on social screens as a key part of their investment objectives.  SRI is essentially the forerunner of ESG.

Three general investment strategies to achieve positive impacts:

-First, negative and positive screens are used.  An example of negative screens would be seeking to bar alcohol and tobacco.  An example of positive screens would be to favor companies that have environmentally safe records, good affirmative action policies, community involvement or high charitable giving standards.

-The second strategy involves shareholder activism.  Fund managers can solicit shareholder votes and use proxy statements to advance ethical business practices, such as diversity, fair pay, and environmentally friendly policies.

-The third strategy, direct investment, is used by institutional and large individual investors (like Bill Gates) to invest in companies or technologies to achieve their desired impacts.

HISTORY:

Values-based investing goes back to the 17^th century when the North American Quakers refused to profit from weapons sales and the slave trade.  The term “Socially Responsible Investing”-SRI-emerged in the  1960s by shunning sin stocks and then weapons stocks during the height of the Vietnam war.  Luther Tyson and Jack Corbett, associated with the United Methodist Church, worked with investment managers Paul and Anthony Brown to launch Pax World Fund in 1971.  Pax World used social as well as financial criteria in making its investment decisions.  By 1982 The SRI strategy participated in the anti-apartheid movement by banning investments in companies operating with South Africa. Ultimately apartheid ended in 1993 and Nelson Mandela was elected president.  After the anti-apartheid movement was successful, SRI investors focused on human rights, military, labor and the environment.  Christians, and particularly Southern Baptists, were a significant part of the SRI movement.  Although the term SRI is still used, ESG is more common today.

INVESTMENT PERFORMANCE:

Although there is a perception that there is a trade-off between achieving either good investment performance or good impacts, numerous studies indicate good performance is correlated with good outcomes.

-An examination of 25 studies by Morningstar showed that there was no performance penalty.  Between 1990 and 2016 Morningstar found that the MSCI KLD Social 400, a sustainability index, outperformed the S&P 500 index by 0.81%/year.

-The CFA Institute reports that “Innumerable studies have taken various approaches to assess the correlation between high levels of ESG commitment and performance.  Overall, they conclude that there is no performance penalty for ESG integration and it is possible to achieve risk-adjusted returns similar to a traditional portfolio.”

-DePaul University professor Daniel Koys and others completed research that indicates that providing better pay, ongoing training, and making employees feel secure-helps companies achieve financial goals.  The rationale is that if companies takes care of their employees, then the employees will be motivated to take care of the customers.

It should be noted that past performance provides no guarantee of future performance, but it is encouraging that past performance has not come at a large investment performance penalty.

CORNERSTONE VALUES-BASED INVESTMENT RECOMMENDATION:

I have completed significant due diligence and analysis related to numerous fund families and over 100 specific funds.  Based on this research, the Vanguard ESG US Stock ETF-(Ticker ESGV) is recommended for individuals interested in a values-based investment holding.  This fund holds a diversified mix of US stocks ranging from large cap to small cap and it provides a mix a faith-based and ESG exposure.  Vanguard’s website says: The fund’s index excludes companies involved with tobacco, alcohol, adult entertainment, firearms, gambling, nuclear power, and unfair labor practices.  In addition, The fund’s index includes companies with superior environmental policies, a strong hiring and promotion record for minorities and women, and a safe and healthy workplace.  Although the fund is new, it is patterned after the Vanguard FTSE Social Index Inv-VFTSX which has the highest 5 Star Morningstar rating (over the last 3, 5 and 10 years).  Although this is a Vanguard fund, it can be purchased through Schwab, Fidelity, and other major brokers.  (In fact, Cornerstone recommends purchasing this fund at Schwab, Fidelity, or elsewhere rather than at Vanguard due to Vanguard’s persistent client service problems.)

 

It needs to be said, that each person has their own values, and a fund that is attractive to one individual may not be attractive to another individual.  Further, not all attributes of a fund may match a person’s values.  Nevertheless, this Vanguard fund looks to offer a reasonable fit for many investors.  Finally, if you have an adviser, you could discuss this fund to see if it fits in your current portfolio.

OTHER INVESTMENT FUND OPTIONS–

There is no clear delineation between faith-based strategies and ESG strategies.  In fact, many faith-based funds incorporate significant ESG criteria.  Moreover, many ESG funds have criteria that incorporates aspects of faith-based funds.  To help differentiate between faith-based and ESG investments, I defined faith-based as those funds that proscribed alcohol, adult entertainment and gambling, (regardless of whether or not they also used ESG).  Values-based funds not using these faith-based screens are categorized as ESG.

Values-based investing is growing rapidly and there are many fund families and individual funds to consider.  Examples are listed below to provide greater information and context.  The examples are not at all comprehensive, but they are reasonably representative of the options available.  Obviously, this investment space is large and there are many investments that are not included.  The examples below are not investment recommendations, but are listed to help show what is available.  If any holdings from the examples are being considered, then there should also be a careful determination of which share class is appropriate.

Faith-Based Examples:

Ave Maria funds represent Catholic beliefs.  The Ave Maria Value Fund-AVEMX is their most prominent example.

Eventide Funds constitute a broad mix of faith-based and ESG criterial.  The Gilead Fund-ETILX has been a strong performer.

GuideStone Funds.  Affiliated with the Southern Baptist Convention.  The GuideStone Equity Index Investor-GEQZX has been a strong core holding.

iShares MSCI KLD 400 Social ETF-DSI.  The MSCI KLD 400 Social Index excludes companies operating in the weapons, alcohol, gambling, nuclear power, adult entertainment, and general ESG criteria.

Praxis Funds.  Mennonite fund family that traces its roots to the Anabaptist movement in the 1500s.  The Praxis Growth Index I-MMDEX has been a strong growth fund holding.

New Covenant Funds are based on the social-witness principles of the General Assembly of the Presbyterian Church (USA).  The New Covenant Growth Fund-NCGFX is a main fund.

Timothy Plan.  The Timothy Plan offers a broad-based fund family based on Christian screens.  The Small Cap Value A Fund-TPLNX (TPVIX I share) was their first offering  in 1994 and it remains their top performer.

Vanguard Funds-The Vanguard ESG US Stock ETF-ESGV is a Cornerstone Investment recommendation, and it is similar to the FTSE Social Index-VFTSX.  The Vanguard ESG International Stock ETF-VSGX provides international exposure.

ESG Examples:

Calvert.  Calvert was an early leader in the SRI movement and remains a key player in ESG investing.  The Large Core Responsibility Institutional Fund-CISIX remains a core holding.

Fidelity US Sustainability Index Fund-FITLX-Index that targets highest ESG-rated companies.

MSCI USA ESG Index-SUSA  The MSCI USA ESG Index uses an optimization approach to maximize exposure to companies with strong ESG characteristics.

PAX World Funds-PAXWX.  This is the original PAX fund and it is a balanced fund that maintains a mix of approximately 60% equity and 40% fixed income.

TIAA-CREF has been doing responsible investing for 40 years and the Social Choice Equity Fund-TISCX institutional and TICRX retail funds represent a broad-based ESG strategy.

 

Let me know what you think:

This blog barely scratches the surface of values-based investing and Cornerstone maintains significantly more information.  Feel free to contact me at jjohnson@CornerstoneInvestmentsLLC.com.

 

Jeff Johnson November 9, 2018

 

 

</aInvesting and Planning-Worse than a Root Canal?

Some things in life really matter-a lot.  Financial resources for food and housing matter much more than your choice of socks or lunch today.  Adequate retirement resources are critical to ensure that you don’t need to work on your last day on earth.  (The joke is that you don’t want to have to cut your cash flows so closely that the last check that you write bounces.)  The reality is that people experience far too many mismatches between spending and portfolio income, and the retirement years are not so “golden.”

Whether the 1%, middle income or lower income, good decisions and implementation are critical.  Like everyone, you have investment and financial planning needs and you probably wonder about the best course to meet these needs.  If you don’t have any adviser, then should you get one?  If you have an adviser, then is this person meeting your needs?  After all, your role as the proverbial Walmart greeter should be because you like getting out and meeting people, not because you are short of cash.  On a more serious note, you want the financial flexibility to fund college (whether for yourself, your kids or your grand-kids) and you also want flexibility related to healthcare choices and other living expenses.

Finding answers can be overwhelming for some, and pure drudgery for others.  A typical response for many is to simply procrastinate.  But the needs don’t go away and the adverse consequences of procrastination compound exponentially over time.  Nevertheless, it seems some would rather have a root canal than have to deal with these matters.

 

CORNERSTONE Criteria and Guidelines-A Roadmap:

The objective of this Cornerstone blog is to provide some basic criteria and guidelines.  The blog gives both a high-level overview with general information, and also links to provide much greater detail.  People and circumstances are unique so there is no simple cookie cutter answer, but the intent is to provide objective content to help meet your needs.  The information should help determine the type of professional counsel that you may need.  It may also help evaluate costs and benefits of any current advisers.  Hopefully the content is worthwhile so that you don’t have to fall back on your brother-in-law (who sold used cars before getting into investments.)

 

INVESTMENTS:

At a basic level, you need a strategy and tactics so that your savings can be invested in a way to meet your needs.  This involves a determination of your Investment Objectives and Risk Profile.  See Investment Objectives .  It also involves an Asset allocation Plan to help meet your objectives.  See the  Cornerstone Asset Allocation example .  This plan should utilize primarily mutual funds and Exchange Traded Funds-ETFs rather than stocks of individual companies.  The Asset Allocation Plan provides diversification and rebalancing, and it involves the appropriate mix of:

1. a) equity and fixed income,
2. b) domestic and foreign,
3. c) large and small capitalization,
4. d) Other assets. There are many other asset classes that can comprise your Asset Allocation Plan as the portfolio size increases.

Major Investment Options:  Although the development of Investment Objectives and Asset Allocation Plans may seem daunting, the good news is that there are many potential strategies and options.  Moreover, technology has made investing easier and less expensive, and online websites are excellent.

Investment options are as follows:

1. a) Do It Yourself (DIY).
2. b) Robo-Advisers.
3. c) Outside Advisers-Registered Investment Advisors.
4. d) Outside Advisers-Brokerage/Commission.

Do It Yourself:  For many individuals, the default is the DIY model.  DIY is common because most people aren’t interested in investments, they don’t know where to go, they don’t know who they can trust and consequently they simply take whatever comes their way.  The DIY approach typically produces mediocre outcomes and it is not recommended unless you commit to a disciplined approach.  If you follow a disciplined approach, however, the results can be excellent.  A major DIY risk is an over-concentration in risky assets in bull markets and then fear-driven selling during bear markets.  This is called Buy High and Sell Low.  See Do It Yourself .

Robo Advisors:  A better strategy for most is a modified DIY that utilizes Robo Advisers.   “Robo Advisor” is a generic term for an investment platform that offers investment advice based on computer algorithms.  These algorithms are designed to assess your overall investment risk/return profile and then recommend an investment portfolio.  These Robo Advisors then monitor your portfolio over time and make adjustments to rebalance the portfolio to stay aligned with your strategic allocation as the market changes over time.  These programs are capable of producing a disciplined investment approach, and they are typically a very low-cost approach.  A major issue regards the lack of human contact and counsel in the event of a large market decline.  For example, would you feel comfortable trusting a computer algorithm in another severe market downturn like we saw in 2008/early 2009?  Robo Advisors are also impersonal and lack the intuition and personal touch of an experienced adviser.  To address these concerns, some Robo services are incorporating supplemental services that include contact with a live person.  See  Robo Advisers.  Cornerstone strongly believes that these Robo Advisor platforms are an excellent choice for individuals who are comfortable with technology and who do not need face-to-face interaction.

Registered Investment Advisers:  For many individuals, a RIA is the best solution.  These advisers typically provide both investment advice and financial planning services.  RIAs can provide advice that is tailored to an individual’s unique needs and circumstances.  A fee-only RIA offers fiduciary advice (See Fiduciary below), and compensation is based on a fee that is typically 1% of Assets Under Management-AUM for a $1 million portfolio.  Fees vary based on portfolio size and are lower for larger portfolios due to economies of scale.   Some advisers may charge both an AUM fee and a planning fee.  Some RIAs charge a flat fee and some charge based on an hourly fee.  Hourly rates for financial planners often range from $150 to $300.  There are many considerations in selecting and working with an RIA.  See Outside Advisers .  RIAs use both Passive and Active investment styles, and Cornerstone recommends RIAs that utilize the passive/index investment approach Passive/Active Investments .

Note:  the RIA description above is generalized.  While many RIAs are fee-only and they handle both client investment portfolios and financial planning services, there are also pure financial planners who are fee-only, but they do not handle investments.  There are also RIAs that call themselves “Wealth Management” firms.  Some Wealth Managers have the capabilities to handle high-net-worth clients with complex needs, but many other so-called wealth managers are less skilled and they use the wealth management term as a marketing ploy.  Finally, there are dually-registered RIAs who receive both fees and commissions and are best described as fee-based.  See  Outside Advisers  .

Brokers:  Brokers constitute another major category for outside investment services.  Traditional stock brokers, insurance agents and commission-based advisers have business models where they are compensated for commissions on trades.  Some of these individuals offer both investment services and financial planning services.  Some of these businesses may also offer investment advice for a fee instead of commissions.  There are some highly skilled individuals offering excellent advice for a commission, but there are also many who do not.  Whenever a commission is involved, there is a potential embedded conflict of interest.  There is always a question about whether the trade benefits your portfolio or whether it is more beneficial to the broker.  There can also be questions related to doing more trades to generate more commissions.  Brokers also tend to use more higher-cost actively managed products that tend to underperform.  It needs to be said that commissions may be an economic choice for very small portfolios.    Outside Advisers  

 

Key Investment Considerations:

Fiduciary Standards are a key consideration if you choose an outside adviser.  Fiduciary Standards require that an adviser act in the best interest of the clients.  Stated simply, a fiduciary places your interests above their interests.  Cornerstone is generally cautious about the brokerage business model because brokers are not fiduciaries and current laws and regulations hold brokers to a lower standard than RIAs.  Whereas RIAs need to act as a fiduciary in the best interest of the client, brokers must only provide investments that are “suitable”.  As a result, brokers and may use products with high commissions rather than an alternative with lower costs.  RIAs with dual registrations may have the same potential conflict of interest because they can offer commission-based products.  Historically, partnerships and Variable Annuities are other examples of investment products that have high commissions and lower investment returns.  The Department of Labor has proposed rules that require brokers to have a fiduciary standard similar to RIAs for retirement accounts but courts have struck down this provision.  At this time it is difficult to know what fiduciary standards may develop from the various regulatory agencies and the courts.

Passive/Active Investments.  Another key consideration involves Passive versus Active investment management.  Your Investment Objectives and your Asset Allocation Plan can be structured, implemented and managed in a number of ways.  When considering your options, it is important to understand the distinction between Passive and Active investments.  Passive investments use low-cost index funds, whereas Active investments utilize a higher-cost strategy to find investments that “beat the market.”  Research shows that Passive Index investments typically outperform Active investment managers.  At its worst, active management pitches hot products like Bitcoin at its peak.  See Passive/Active Investments .

Adviser/Broker Compensation:  If you are considering an outside adviser, or you already have an adviser, then you need a clear understanding of their compensation and all the costs and expenses included in your portfolo’s investments.  Unfortunately, most individuals do not understand the compensation and costs/expense structure in their working relationship with their adviser.  Many advisers and brokers do not provide the necessary transparency, and they may make you feel like you don’t trust them when you inquire.  It’s your money and it’s their job to provide full disclosure regarding these costs.  When advisers are vague, or when they say investment costs are not something that they can control, then simply move on.  Life is too short and the consequences may be too large.

 

FINANCIAL PLANNING SERVICES:

Financial Planning services provide practical guidance and tactics to meet a wide range of individual financial needs.  Financial planning needs are generally very basic for people just getting started with jobs and careers.  Your needs may be as simple as a monthly budget and a payroll deposit into an investment account.  Over time, however, life gets more complex and there is an increasing need for financial planning services.  Financial planning services may involve complex tax and estate planning strategies for a corporate executive.  Although the DIY approach for financial planning works, there is often a point where professional help is essential.  Cornerstone has links that cover basic topics, but cost-effective financial planning services are available through many Robo Advisor programs, and more comprehensive services are available through RIA firms.  Good financial planners have the experience and judgment to be able to provide good objective advice.  For example, telling clients they are spending too much, or investing too little, or taking too much risk.

Financial planning examples include:

Cash flow budgeting to provide guidance for monthly income and spending.  Mint is a free personal finance tool to create a budget and Quicken is another excellent product.  Finally, a simple Excel spreadsheet can handle simple budgets.  See Cash Flow Budgeting.

Managing debt is critically important and includes items like consolidating credit cards, paying off student debt, securing a mortgage and establishing flexibility for refinancing a mortgage.

Retirement Investments are a major financial planning service.  This involves assessing the amount of money to invest for an expected lifestyle.

This involves determining:

a) guidelines for financial planning life stages, contribution rates and withdrawal rates.

Financial Planning Life Stages and Link.Life Stages

b) Assessing progress towards achieving retirement goals. It is good to examine several models to get a more robust perspective on achieving your retirement goals. Cornerstone includes models from Fidelity, JP Morgan and T. Rowe Price.  Cornerstone has also developed a sophisticated model that allows you to input your own data and generate your own scenarios.

See Asset Accumulation/Retirement Mileposts Link.  Asset Accumulation/Retirement Mileposts

College costs and funding are increasingly expensive, and strategies are essential to prepare for this high cost/high reward expenditure.  See Investment Products link. College Funding

Tax preparation, planning and strategy is another key financial planning service.  Cornerstone maintains basic tax considerations in the Taxes Link.  Turbo Tax offers easy-to-use software for tax preparation for easy and moderately complex tax returns.  Some RIAs incorporate tax preparation in their planning services, and this is beneficial because it integrates tax loss harvesting and tax planning into the investment process.  CPA services are also available for moderate to complex returns.  See Tax Link.Tax

Insurance coverage is another consideration to meet various potential adverse risks.  Once again, online services provide easy, cost-effective comparisons and Geico and Progressive are two good online examples for auto and homeowner coverage.  Online services are also available for term life insurance.  Finally, health care insurance is critical, but this is complex and requires specialists in this field.

Estate Planning becomes increasingly important as individuals become older and as they have a wide range of assets and larger portfolios.  It is ironic, but there is a large need for people to get good advice to transfer and divest the assets that they accumulated during their lifetime.  This involves wills, trusts and other complex strategies and Cornerstone recommends specialized legal advice.  It should be noted that some RIAs incorporate estate planning into their overall financial planning advice.

 

FINAL WORD/FEEDBACK:

This summary was designed to educate and to provide an objective overview of typical needs based on my career observations.  It is certainly not all-encompassing and it definitely benefits from feedback.  Feel free to Reply with all comments, recommendations and corrections.  jjohnson@CornerstoneInvestmentsLLC.com.

 

June 22, 2018

 

 

The movie “Paul, Apostle of Christ” came to my attention while reviewing Wall Street Journal film reviews.  The Wall Street Journal is a staple of my daily reading, as it has been for my entire career.  The Journal is attractive because it includes not only business/economics content, but also book and movie reviews, sports coverage and various travel and lifestyle articles.

A key reason to comment on this faith-based film is the reminder about priorities, and especially intangibles beyond money.  Since Cornerstone exists to provide investment/financial planning information within a Christian context, the movie presents a culture and set of deeply convicted values that are thought-provoking and challenging for our fast-paced investment world.  The main characters are Paul in a Roman prison, Luke-the author of Acts, and a community of believers.  The setting is the persecution of the early church in Rome during the reign of Nero.  The cruel persecution included martyrdom by being beheaded, burned alive or fed to lions as entertainment for the masses.  In spite of the persecution, Acts 2:44 describes this as a time where “believers were together and had everything in common.  Selling their possessions and goods, they gave to anyone as he had need.”

Moreover, Paul says in Philippians 4:12 “I know what it is to be in need, and I know what it is to have plenty.  I have learned the secret of being content in any and every situation, whether well fed or hungry, whether living in plenty or in want.”

In these conditions, we see that Paul didn’t get exactly get stressed out about portfolio volatility.  Despite the persecution, Paul (and the early church) advanced a message of love, not vengeance.  Although Paul is eventually beheaded for his faith, and persecution of many Christians remained rampant, their impact led to Christianity becoming the majority religion of the Roman Empire.  And today it is the largest religion in the world.

It is also encouraging to see the Hollywood film industry and the viewing public support movies like this.   Mel Gibson’s 2004 blockbuster “Passion of the Christ” was the most successful film of this genre, and there is a continuing market (or hunger) for this spiritual dimension.  “Paul, Apostle of Christ” is not likely to contend for Best Picture of 2018, but the $5 million film is widely described as moving and impactful.   The movie is from Sony Pictures Entertainment’s Affirm label.  The Affirm production company produced other Christian-themed films that includes “Heaven is for Real,” “Soul Surfer” and “Risen.”  The movie was dedicated to all who have been persecuted for their faith.

This commentary is not a recommendation to forsake our careers, our portfolios or a disciplined financial plan.  Cornerstone will continue to track investments and financial planning within the context of free markets and capitalism.  There is also no plan to have recurring movie reviews as part of this website.  We are not all called to be Paul and we don’t all need to be martyrs.

“Paul, Apostle of Christ” does, however, make a strong statement regarding our ultimate priorities.  The movie reminds us to keep a proper perspective that includes Stewardship ,  Charitable Contributions and especially the love of God and our neighbor.

Check out the online reviews, and if it sounds good then go see it.

https://www.wsj.com/articles/the-story-behind-paul-apostle-of-christ-1523571752?mod=searchresults&page=1&pos=1

5 takeaways from ‘Paul, Apostle of Christ’

http://www.kansascity.com/entertainment/movies-news-reviews/article206403514.html

CHARITABLE CONTRIBUTIONS-As Principal of Cornerstone Investment Associates, I do blog posts that are associated with my website, and the content below covers Charitable Contributions.  Cornerstone reviewed a wide range of publications and economic research related to charitable giving to compile broad comments and recommendations.  The effort is to provide evidence-based information to highlight charitable contributions that make the biggest impact.  At the same time, it is critical to recognize that some charitable giving can be ineffective, and some giving can even be detrimental.

Comments are listed as follows:

At a high level, the United States is a generous country that provided $390 billion to charitable causes in 2016 according to the Giving USA Center on Philanthropy at Indiana University.  This national giving level is roughly comparable to the total output of goods and services in Minnesota.  Individuals provided 72.3%, and foundations, bequests and corporate gave the remainder.  Religion received the largest amount at 31.5% and education was second at 15.3%.  Interestingly, Americans give three times as much to charity as is spent on gambling and 10 times as much as is spent on professional sports.

Support your Local Church and Local Missions:  First, I believe it is important to support your local church and Local Missions.  America is experiencing a rapid decline in the traditional family and there is a corresponding increase in social problems.  A large body of research shows low-income single-parent families are increasingly economically marginalized.  For example, the Joint Economic Committee-a bipartisan group of U.S. House and Senate members-reported this year that one-third of all kids are being raised by a single mom or dad, or by no parent at all.  The report also showed that the rate of births to unmarried women has climbed from 10% in 1970 to 40% today.  The New York Times reported in July 2017 “that between 2003 and 2012 the number of babies born dependent on drugs (via their addicted moms) grew nearly five-fold”.

Children raised by single parents and/or in a drug-dependent environment are often in low income categories, and this results in lower educational achievement and increased drug usage and crime.  This is clearly a complex issue, and a comprehensive solution is beyond the scope of this blog.  Nevertheless, charitable giving to the local church can provide financial and spiritual support and can help to maintain the social fabric.

Tom Stinson, Professor Emeritus of Applied Economics at the University of Minnesota, has completed extensive research showing the importance of early-childhood education and the resulting social benefit when kids are ready for kindergarten.  There is a continuing need, however, for support beyond kindergarten.

Charitable giving for local outreach and missions is also beneficial, especially where you know the people and you can see the outcomes.  There is no substitute for your first-hand/direct observation.

Charitable contributions to education and health care comprised 15.3% and 8.5% respectively of total 2016 giving.  Although this blog does not have definitive research, analysis or evidence related to education and health care giving, it seems that the effectiveness of these two categories would be highly beneficial.  Giving to human services, the environment and the arts are other categories that will be monitored, and there will be a follow-up in the future.

Cornerstone has seen less effectiveness from some larger nonprofit charities.  One needs to be mindful of scandals and fraud going back in time with United Way, televangelists, etc.

Contributions supporting people in foreign countries often have the biggest bang for the buck.

There is often a tendency to give at the local or national level, but there is also a strong rationale for charitable contributions outside the US.  This foreign giving provides sustainable essentials like water and sanitation, food, healthcare, education, and economic opportunities to attack the root causes of poverty for real and lasting change.  Academic studies show significant economic evidence that foreign giving is particularly impactful in helping people in faraway lands meet their basic needs.

For example, Dean Karlan, Economics professor at Yale University shows that a dollar spent in Uganda has 10 times more impact than a dollar spent locally.  He uses randomized trials to determine what social policies work.  He finds that a person in East Africa could be provided safe drinking water through chorine dispensers for a year at a cost of $1.98.

Give Directly documented the impacts of cash transfers in Uganda using a randomized controlled trial and their procedures were reviewed recently in the November 2016 Quarterly Journal of Economics.  They found people used the money to start small businesses, increase the size of their herds, pay for education, repair their homes.  Furthermore, there was no evidence of the purchase of “temptation goods” like alcohol and cigarettes.  Ultimately, these cash gifts keep kids nourished, healthy, and going to school, it encourages work, investment and entrepreneurialism.  It needs to be said that for the United States, there is evidence that cash-based welfare programs undercut the benefits they create for children by discouraging parents from working.”

Child Sponsorship:

Child sponsorship is another high-impact outcome.  It is estimated that there are approximately nine million children sponsored worldwide at more than $5 billion per year.  Bruce Wydick, Economics professor at University of San Francisco, completed a study related to child sponsorship funding in Uganda, Guatemala, the Philippines, India, Kenya and Bolivia.  Paul Glewwe, Economics professor at University of Minnesota was also involved.  This research demonstrated positive outcomes related to better educational outcomes, including a greater liklihood to complete a university education, to obtain a white-collar job, and to grow up to become community leaders and church leaders.  This research was reviewed and approved by researchers at Stanford, USC, Washington and Cornell.   Child sponsorship is so effective because it expands children’s views about their own possibilities and allows them to achieve their God-given potential.  Child sponsorship also connects donors with real people and some 5 million children are now sponsored by World Vision and Compassion International.

Mission Trips:

Short-term mission trips are increasingly common, but the effectiveness of spending $5 billion annually is less clear.  The exposure to poverty from these short-term trips is often described as life-changing by those participating in short-term mission trips.  Participants also often say they receive more than they give.  Unfortunately, there is an argument that these short-term trips often produce little lasting results.  This is particularly true when the trips displace local labor.  Free food and clothing distribution may encourage handout lines while diminishing the dignity of the poor while increasing their dependency.  Never do for the poor what they can do for themselves and limit one-way giving to emergencies.

There are many critics of global institutions like the World Bank and government aid programs due to a record of ineffective assistance and corruption by recipient country governments.  It certainly looks like private charitable contributions have achieved greater results.  Nevertheless, some helpful criteria are as follows:

-Outside resources should build on existing resources, and never substitute for existing capacities and potential.  Don’t negate the reality that recipients need to be involved in planning and implementation.

-It is best to be partners where everyone has “skin in the game”.

-Leadership needs to come locally, not by an “Expert” living in the US.

-Avoid a patronizing approach where individuals from afar make decisions for the poor instead of empowering the poor to make the best decisions for themselves.

-There is a need for continuing objective research, especially related to longer-term outcomes.

Charitable Rating Sources and Books:

There are a number of sources that help identify key factors including fund-raising costs and overhead costs.  Some good ones are as follows:

http://givewell.org/

https://www.charitynavigator.org/

http://charitywatch.org

http://givedirectly.org

There are also some highly-acclaimed books that deal with giving that is ineffective or even detrimental.  The best intentions can do harm “despite meaning well” with many negative unintended consequences.  For example, research shows that small amounts of cash given to the poor can promote negative behaviors while large transfers can cause real transformation.  Good sources are as follows:

“When Helping Hurts:  How to Alleviate Poverty without Hurting the Poor…and Yourself”-Economic college professors Steve Corbett and Brian Fikkert.

“Toxic Charity”-Robert D. Lupton.

Stewardship:

Stewardship contributions by Christians and other faith communities constitute a large proportion of charitable giving and they generate substantial positive outcomes.  In many regards these outcomes are real but immeasurable.  A 2012 study by George Barna of people who give to the church showed that 5% tithed 10% of their income.  Hopefully, charitable giving will increase and provide even greater benefits.

See More.  https://cornerstoneinvestmentsllc.com/stewardship/

Giving & Happiness:

Much of this blog is focused on charitable giving to achieve positive outcomes.  It needs to be said that there are personal reasons to give as well.  There is a high correlation between charitable giving and happiness.  Giving that results in stories of great transformation can provide immense joy.  By contrast, psychologists report that self-centeredness and self-absorption tend to lead to stress behaviors, isolation and unhappiness.

Some Take-Aways:

-Support your church and local missions.  You are maintaining an institution that imparts moral values that contribute to social stability.

-Go with what you know and can directly observe on a local basis.

-Consider global missions.  There is potential for a bigger bang for the buck, especially for child sponsorship.

-Utilize web-based rating services to help ensure effectiveness.

-Don’t let “When Helping Hurts” and “Toxic Charity” discourage your giving, but use these resources to redirect the focus.

-Recognize the immense benefit from “investments” in charitable giving.

This is a first shot at a complex topic.  I will continue to monitor charitable outcomes, I will incorporate all replies and feedback, and I will follow-up in the future.

Let me know what you think.

Jeff Johnson

Date:  January 13, 2018